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Ideology is driving our energy policy instead of economic reality

Last week the Irish Academy of Engineering (IAE) called for a halt on a proposed €30bn spend on the national energy infrastructure so that a proper assessment of future energy needs as well as the economic benefit of the massive investment in renewable power could be addressed. ...Plans are now afoot to deliver up to 7,800 MW of wind power on the island of Ireland, with a mixture of onshore and offshore projects in the pipeline. It may well help reduce our carbon emissions, but at what cost?

Last week the Irish Academy of Engineering (IAE) called for a halt on a proposed 30bn spend on the national energy infrastructure so that a proper assessment of future energy needs as well as the economic benefit of the massive investment in renewable power could be addressed.

It is a damming indictment of our energy policy that no such study has been undertaken. Despite the dramatic slide in energy demand, the Government and its regulatory arm, the Commission for Energy Regulation (CER) are pursuing policies which belong to a different era and which will serve only to drive prices higher -- and this in an already uncompetitive market.

Growth in energy demand , particularly for electricity, is now falling not just in Ireland but across the world. Recent figures from the International Energy Agency show demand falling for the first time since World War II.

But none of this has discouraged the wind lobby, secure in the knowledge that they have a well disposed minister at the helm.

Plans are now afoot to deliver up to 7,800 MW of wind power on the island of Ireland, with a mixture of onshore and offshore projects in the pipeline. It... more [truncated due to possible copyright]

Last week the Irish Academy of Engineering (IAE) called for a halt on a proposed €30bn spend on the national energy infrastructure so that a proper assessment of future energy needs as well as the economic benefit of the massive investment in renewable power could be addressed.

It is a damming indictment of our energy policy that no such study has been undertaken. Despite the dramatic slide in energy demand, the Government and its regulatory arm, the Commission for Energy Regulation (CER) are pursuing policies which belong to a different era and which will serve only to drive prices higher -- and this in an already uncompetitive market.

Growth in energy demand , particularly for electricity, is now falling not just in Ireland but across the world. Recent figures from the International Energy Agency show demand falling for the first time since World War II.

But none of this has discouraged the wind lobby, secure in the knowledge that they have a well disposed minister at the helm.

Plans are now afoot to deliver up to 7,800 MW of wind power on the island of Ireland, with a mixture of onshore and offshore projects in the pipeline. It may well help reduce our carbon emissions, but at what cost?

Reduction

At the same time we have busily been building efficient new gas fired electricity plants, ensuring that we have more than enough capacity to meet our needs in the foreseeable future. Indeed, for the first time in years we are likely to have a surplus of plants, a development which in any normal market would be expected to see a reduction in electricity prices.

But this is not happening. Instead the policies which are now being pursued by the Government have ensured that not only is there no prospect of such price reductions, there is a very real threat that prices will have to rise in order to pay for our policy on renewable energy.

The IAE's review of Irish energy policy outlines just how out of date the current energy plan has become. The document makes for fairly grim reading. It shows that Irish energy policy has been formulated with little regard for planning or the proper costing of major initiatives such as the new east-west interconnector and a major investment in renewable energy.

Bluntly it states the massive €30bn investment is being undertaken to meet a need that is no longer there -- the recession, it claims, has rendered current policy outdated.

Over-investment

If it does proceed, the Academy insists Government policy is likely to lead to significant over-investment in capital projects and a needless increase in prices to the electricity consumer.

The IAE document calls for an immediate freezing of regulated investment in our energy sector so the proper studies can be conducted on the viability of various proposals, from the amount of wind power being suggested for our national grid, to the huge spend on interconnectors which may never be used.

Unfortunately the document met with a mute response from the Communications, Transport and Energy Minister Eamon Ryan, who seems intent on proceeding with current policy regardless of the cost.

This is hardly surprising. Since the current administration came into office energy policy has clearly been dictated by Green Party ideology rather than any pragmatic approach to meeting the nation's energy needs.

Late last year Mr Ryan upped the ante for the Irish energy sector when he set a new target that 40pc of our electricity needs would be derived from renewable sources by 2020, some 10pc ahead of the previous target, itself well ahead of the targets set out by the EU directive on renewable energy. In Ireland's case the directive set a target that renewables share of "final energy consumption" should move from 4pc in 2008 to 16pc by 2020.

Almost all of this renewable energy is expected to be met from wind power and when he announced his new target Mr Ryan warned that government and state agencies must "row in" behind the new target, at no time addressing the important issue of cost or even how the target might be achieved.

Economic and technical studies were noticeably thin on the ground, making it pretty clear that the new target is driven by ideology rather than any pragmatic assessment of our future energy needs.

Document

The IAE document called as a matter of urgency for such costings or a "rate impact analysis" to find out how much electricity prices will have to rise in order to meet the new target. It said that such an analysis should set out to establish the level of wind penetration needed to meet the new EU target and that unless it can clearly be demonstrated that exceeding this policy reduces electricity prices, the new 40pc target should be set aside and instead we should focus on meeting the lower 16pc commitment for renewable energy.

But even that lower target will not come cheaply. According to Eirgrid some €4bn will be spent in upgrading the national electricity grid over the coming decade or so. Most of the money will be spent in order to allow the grid cope with the variable nature of wind power.

During the boom years of the Celtic Tiger few paid attention to matters of cost. This was best displayed by the policy decision taken by the Commission for Energy Regulation (CER) which, in erecting a framework to encourage new participants into the Irish electricity market, allowed prices here to become artificially inflated.

We have now arrived at a situation where Irish electricity costs are among the most expensive in Europe, even the world. It is one of the factors which has been identified as crippling Irish industry, helping to erode its competitiveness at a time when costs have never been more important.

Since 2000 Irish energy prices have departed from the EU average and set a course of their own. While a decade ago Ireland had some of the cheapest electricity in the EU, by 2008 industrial users were paying more for electricity than in every EU country bar Greece and Cyprus. This development coincided with the policies adopted by the CER to encourage competition and it also coincides with the introduction of subsidies for the development of huge tranches of wind power.

These costs were partially camouflaged during the boom years of the Celtic Tiger, but by late last year it should have been apparent the market could no longer tolerate the imposition of needless costs. Unfortunately it looks as though things are set to get even worse, as contrary to popular belief wind power is anything but ceap and at best notoriously difficult to cost.

Costs

Those costs come on two fronts, the installation of turbines on the one hand and the upgrading of the grid on the other. But whatever way you look at it, current energy policy looks set to cost the economy some €30bn between now and 2020.

The alarming conclusion of the IAE report is that the Government needs to immediately freeze all regulated capital expenditure, pending what it termed a "robust techno-economic analysis incorporating up to date assumptions on demand growth and primary energy supply and prices.

It suggests we re-examine policy in relation to the proposed level of renewable power penetration on the grid in light of both greatly changed economic circumstances and the severe deterioration in Ireland's international competitive position.

Above all it identified the need for a properly resourced robust techno-economic analysis of our energy policy, something which is clearly lacking at the moment.

This much is clear from the ad-hoc way in which projects have been developed around the country. The renewable energy subsidies or REFIT scheme offers huge subsidies for the development of wind power and has encouraged individual groups, including private individuals, corporates and public utilities to set about building windfarms in numerous locations with little regard to the cost of connecting these to the grid. On top of this few -- the ESB, Bord Gais and Bord na Mona are among the exceptions -- have developed the conventional power sources needed to keep the power flowing when the wind either dies or blows too strongly.

Ad-hoc development

This ad-hoc development of numerous wind farm sites will only add to the cost of our renewable programme, yet there has been no effort made to carry out the rate impact study demanded by the IAE.

But it is not just the economics which cause concern: there is also the technical feasibility of carrying a huge load factor of wind power on a national grid.

Advocates of wind power often fall back on the Danish model, suggesting it provides a perfect example of how wind power can easily be accommodated and with no danger of power r outages as the wind dies.

What these advocates tend to omit, however, is the numerous advantages, not least its isthmus-like geography, which the Danish enjoy and which makes their grid ideal for high volumes of wind-based power.

But even with all of its advantages, Denmark still only secures 20pc of its electricity from wind power, approximately half the target set by our own energy minister.

The Danes have managed to reach 20pc after over 30 years of investment and technological development, yet Eamon Ryan is proposing that we surpass this achievement within a decade and with none of the advantages enjoyed by the Danes.

Advantages

Those advantages were crucial to allowing the development of a high wind load on the Danish grid.

Linked to both the continental and Scandinavian electricity networks, they enjoy the facility of importing and exporting power at short notice. The key advantage is their ability to balance their wind output with hydro power from Norway. Whenever the Danish system generates a surplus it is simply fed into the Norwegian system, who in turn can shut down hydro power at short notice. In effect this acts as a storage system for surplus wind power. When the Danish wind system is out of action the reverse happens.

No other power source comes close to matching hydro power as an effective balancing tool to even out the variable nature of wind power.

Needless to say Ireland does not have sufficient hydro power to allow this to happen, a fact conveniently ignored by the wind lobby group.

The other crucial element which advocates of wind power routinely ignore is the issue of cost. Most, including on occasion Eamon Ryan, prefer instead to promote the myth that wind power is somehow free power.

Nothing could be further from the truth. While hard data is difficult to come by, our own energy regulator has at least made a stab at gauging the economics of wind. The CER's own conclusion is that it "starts" to become competitive with conventional sources when oil prices are somewhere north of $200 a barrel.

We are a long way from that right now and, given the dip in demand, it may be years before we see a return to even the record of $147 a barrel set in July of last year.

Even if oil does head back to these levels in the short term, we are still shy of the type of interconnection needed to make wind power a realistic choice for our grid -- unless we want to drive electricity prices even beyond the current level.

Unfortunately for consumers and industry, this is exactly what the Government is now proposing. In July 2006 it decided to construct an interconnector from Ireland to Wales, a decision which the IAE point out "would appear to have been taken without the benefit of a robust techno-economic study or cost benefit analysis.

This was followed in February last year by a submission from the CER making the business case for the investment, a submission which estimated the cost of the connection at €594m, a price which is more than double the unit cost of a similar link being built between Britain and the Netherlands.

The IAE quite rightly question the huge price discrepancy and it says it could find no evidence of a study which might shed some light on the discrepancy.

Even worse, the submission by the CER was based on growth assumptions which have now been invalidated by the economic crisis, the IAE stated.

But it gets worse. The existing interconnector between Northern Ireland and the Republic had a utilisation level of about 14pc last year, meaning it was idle 86pc of the time.

Also the British government, which would normally make a financial contribution to an interconnector linking its grid to that of another EU state, has decided not to help fund the project, a decision taken on the grounds that it could see no benefit flowing from the link -- given the performance of the North-South link this seems a reasonable position.

You would have to ask is this another case of ideology driving the nation's energy policy, rather than economics or energy needs.

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